Madras cements final report


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Madras cements final report

  1. 1. A STUDY ON THE WORKING CAPITAL MANAGEMENT OF MADRAS CEMENTS LIMITEDReport submitted in partial fulfillment of the requirements For the award of degree in Master of Business Administration Submitted by Bala venkatachalam.s Register no: 3511110836 Under the guidance of DR.V.BALASUBRAMAIAN Apr – May 2012 Page 1
  2. 2. Reg No – 3511110836 DECLARATION BY THE CANDIDATES.BALAVENKATACHALAMReg No – 3511110836I MBASRM UNIVERSITYCHENNAII hereby state that the report entitled, “A study on the workingcapital management of Madras Cements Limited” was undertaken atMadras Cements Limited (corporate head office) , R k salai,Mylapore, Chennai, submitted to SRM UNIVERSITY, Chennai inpartial fulfillment of Master of Business Administration Degree is arecord of original work done by me and no part of this internshipreport has been submitted for the award of any other Degree,Diploma, Fellowship or other similar studies. Page 2
  3. 3. ACKNOWLEDGEMENTI put forth my heart and soul to thank The Almighty for being with me allthrough my achievements, success and failures.I express my sincere and whole hearted gratitude to the management ofMadras Cements Limited, Chennai for giving me a golden opportunity topursue a valuable project.I extend my gratitude to Mr.Ramanarayanan (Manager-Accounts) forguiding and helping me to solve all kinds of queries regarding the projectwork. I would also like to thank him for his valuable suggestions and constantencouragement at every step of my project work.I sincerely thank Dr.jayashree suresh, SRM UNIVERSITY, for herencouragement.I extend my deep sense of gratitude to Dr.v.Balasubramanian, Faculty, andSRM UNIVERSITY for providing support guidance and valuable ideas whichhelped me to complete this project successfully.Finally, I extend my heartfelt thanks to my friends and family members whohave been a source of inspiration and support throughout the project. Page 3
  4. 4. EXECUTIVE SUMMARYMadras Cements Ltd. is an India-based company that is principally engaged in themanufacture of cement, ready mix concrete and dry mortar products. TheCompany operates in two segments: cement and power generation from windmills.The Company’s products include ordinary portland cement, portland pozzolanacement and wind power. During the fiscal year ended March 31, 2011, theCompany’s cement production was 7.305 million tons; ready mix concrete divisionhad produced 59,589 cubic meters of concrete; dry mortar division had produced27,156 tons of dry mortar, and wind farm division had generated 357200000kilowatts hour.The project entitled “Working Capital Management in Madras Cements Ltd”deals in this segment. The term of study was kept limited to make the title true.The purpose of the report is to get the in depth understanding of the process ofworking capital management. With the growing Indian economy and thegovernment policies for infrastructure the demand for cement is increasing andseeing this as an opportunity is under taking many new projects for expansion ofthe production which are under implementation for increasing the capacity of theplants. Working capital has been analyzed in two ways – overall study of theworking capital of Madras Cements Ltd and secondly, plant-wise workingcapital of Madras cements ltd, since the company has fifteen plants in differentregion and each plant has its own working capital.The performance of the cement division of the company during the year wassatisfactory. During 2010-11 the cement production was 73.05 lacks tonnes,compared to 80.26 lacks tonnes of the 2009-10.The clinker production at Alathiyurand Jayanthipuram was lower at 34.96 in 2010-11 lacks tones as compared to Page 4
  5. 5. 40.56 lacks tones the previous year of 2009-10 . The cement production atAlathiyur and Jayanthipuram was lower at 36.31 lack tones as compared to 47.9lack tones during the previous year. The cement dispatches of Alathiyur andJayanthipuram units where 34.89 lack tones as compared to 47.5 lack tones duringlast year.During the 2010-11, the sale of cement was at 72.55 lack tonnes compared to 79.54lacks tonnes the previous year of 2009-10.The demand growth for the cement industry as a whole for the year of 2010-11 was5%, compared to the growth of 11% for the previous year of 2009-10. The growthpercentage is the lowest in last several years.The Southern Region witnessed a decline of 4% in 2010-11 compared to a growthof 5% during the previous year of 2009-10. Within the Southern Region, theStates of Andhra Pradesh and Kerala, which are important market segments for theCompany, had witnessed negative growth. Lower infrastructure spending andslow-down in the realty sector have contributed to this subdued growth. Whilethere has been a decline in the demand, the cement industry has seen a growth inthe capacity additions on All India basis and specifically in the Southern Region.These factors have adversely affected the sales volume of the Company for theyear.It has shown substantial decline in turnover, cash profit, profit before taxand profit after tax. The total turnover of company has registered a decline of4.61% in 2010-11 whereas operating profits for the year where lower by 27.10% in2010-11 mainly on account of decrease in the volume of blended cement in theoverall cement sales, lower realisation and ineffective cost control.The profit before tax was down by 43.97% at Rs.297.19 crores in 2010-11 asagainst Rs.530.45 crores in the previous year of 2009-10. The profit after tax is Page 5
  6. 6. 210.98 crores in 2010-11 as against Rs. 353.68 crores in the previous year of2009-10. EPS was 8.87 as against 14.86 in the previous year.The objective of this project work is to focus on the working capital of the MadrasCements Ltd and exploring its potential in the company. The project contain thebasic postulates of working capital, procedure of analysis of working capital, ratiobeing used to define the working capital and the impact of working capital in thecompany in case of excess or inadequacy. Also, the project contains analysis ofestimation of working capital requirement and the procedure to estimate workingcapital requirement in manufacturing and trading concern and from the dataavailable it can be concluded that it holds a very strong position in the market. Page 6
  7. 7. CONTENTS CHAPTER PARTICULARS PAGE NO 1 INTRODUCTION 1.1 INTRODUCTION ABOUT THE STUDY 1.2 Need of working capital 1.3 Objective of the study 1.4 Scope and design of the study 1.5 Limitations 2 ORGANISATIONAL PROFILE 2.1.Company profile 2.2. Company history 3 INDUSTRY PROFILE 3.1.Cement industry in India 3.2. Cement industry 4 THEORITICAL FRAME WORK 5 DATA ANALYSIS AND INTERPRETATION 6 CONCLUSION Page 7
  8. 8. INTRODUCTIONChapter11.1 DEFINITION OF WORKING CAPITAL:In the words of Prof.S.C.Kuchhal, “Working capital has to be, regarded as one ofthe conditioning factors in the long run operations of a firm which is often inclinedto treat it as an issue of short run analysis and decision-making”. In the words ofShubin, “Working capital is the amount of funds necessary to cover the cost ofoperating the enterprise”. In the words of Genestenbug, “Circulating capital meanscurrent assets of a company that are changed in the ordinary course of businessfrom one form to another as for example from cash to inventories, inventories toreceivables, receivables into cash.CONCEPTS OF WORKING CAPITAL:-There are two concepts of working capital:1.Gross working capital2.Net working capital.In the broad sense, the term working capital refers to the gross working capital andrepresents the amount of funds invested in current assets. Current assets are thoseassets, which in the ordinary course of business can be converted into cash with ina short period of normally one accounting year. In a narrow sense, the termworking capital refers to the net working capital. Net working capital is the excessof current assets over current liabilities.Working capital = Current assets – Current liabilities. Page 8
  9. 9. Net working capital may be positive or negative. When the current assets exceedthe current liabilities the working capital is positive and the negative workingcapital results when the current liabilities are more than the current assets. Currentliabilities are those liabilitieswhich are intended to be paid in the ordinary course of business within a shortperiod or normally one accounting year out of the current assets or the income ofthe business. The gross working capital concept is financial or going concernwhereas net working capital is an accounting of working capital. These twoconcepts of working capital are not exclusive; rather both have their own merits.Gross concept is very suitable to the company form of organization where there isdivorce between ownership, management and control. The net concept of workingcapital may be suitable only for proprietary form of organizations such as sole-trader or partnership firms. However, it may be made clear that as per the generalpractice net working capital is referred to simply as working capital1.2 NEED FOR WORKING CAPITALThe need for working capital to run the day-to-day business activities cannot beoveremphasized. We will hardly find a business firm which does not require anyamount of working capital. Indeed, firms differ in their requirements of theworking capital. We know that a firm should aim at maximizing the wealth of itsshareholders. In its endeavor to do, a firm should earn sufficiently return from itsoperations. Earning a steady amount of profit requires successful sales activity.The firm has to invest enough funds in current assets for generating sales. Currentassets are needed because sales do not convert into cash instantaneously. There isalways an operating cycle involved in the conversion of sales into cash. Page 9
  10. 10. TYPES OF WORKING CAPITAL:Working capital may be classified in two ways:a. The basis of concept.b. On the basis of time.On the basis of concept, working capital can be further classified into:a. Gross working capital.b. Net working capital.On the basis of time, working capital can be further classifieda. Permanent or Fixed working capital.b. Temporary or variable working capital.Gross working capitalGross working capital is represented by the total sum of all current assets of anorganization. The gross working capital is also known as current capital orcirculating capital.Net Working capitalNet working capital is the difference between the current liabilities. The concept ofnet working capital helps the management to look forward the permanent sourcesfor financing the working capital. The working capital management has to examinethe proportion of the current assets, which has to be financed by permanent capitalor long term, borrowings. Page 10
  11. 11. Permanent working capital.Permanent working capital is that part of capital, which is permanently ,locked upin the circulation of current assets and in keeping it’s moving. It can be classifiedinto:i. Regular working capital andii. Reserve margin working capital.Regular working capitalIt is the minimum amount of liquid capital needed to keep up the circulation offrom cash to inventories to receivables and back again into cash.Reserve margin working capitalIt is the excess over the need for regular working capital that should be providedfor contingencies such as raising prices, business depressions, and strikes, fibers,unexpected severe competition and special operations such as experiments withproducts or with the method of distribution and the like which can be undertakenonly if sufficient funds are available.Variable working capitalThe variable working capital refers and denotes that the amount of funds over andabove the fixed working capital to take care of seasonal shifts etc. This variableworking capital also referred to as fluctuating or temporary working capital andshould be financed by short-term sources of funds.The variable working capital changes with the volume of business. It maybe sub-divided into:I .Seasonal.ii. Special working capital. Page 11
  12. 12. The capital required to meet the seasonal needs of industry is termed as seasonalworking capital. On the other hand the special working capital is that part of thevariable working capital which is required for financing operations such asinauguration of extensive marketing campaigns and carrying out special jobs andsimilar other operations that are outside the usual business of buying, fabricatingand selling.Excess Working CapitalThere are problems associated with excess working capital. Firstly, more fundswould make the management complacent and it may invest this money inunnecessary accumulation of inventory resulting in locking of investment. There isanother possibility that the firm may think of speculation inventory items inquantities more than needed and these gains may not be realized due to pricefluctuations. The excess working capital also known as surfeit of working capital,which promotes accumulation of inventories, permissive, credit policies and slackcollection procedures .Due to excess working capital, complacency develops andmanagement efficiency deterioratesInadequate Working CapitalIf working capital is not adequate, the organization will come across certainproblems. The adverse effects of inadequate working capital are business failures,reduction in profitability and consequent decline in return on investment (ROI).The company will not be able to take advantage of full capacity utilization and thegrowth that is desired cannot be achieved when enough funds are not available atthe right point of time. All the operating plans cannot be successfully implementedwhen funds are in short supply. In adequate working capital can also lead totemporary insolvency of a firm. Page 12
  13. 13. FACTORS DETERMINING THE WORKING CAPITALREQUIREMENTS:The working capital requirements of a concern depend upon a large number offactors such as nature and size of business, the character of their operations, thelength of production cycles, the rate of stock turnover and the state of economicsituation.1. Nature or character of businessThe working capital requirements of a firm basically depend upon the nature of itsbusiness. Public utility undertakings like electricity, water supply and railwaysneed very limited working capital because they offer cash sales only and supplyservices, not products and as such no funds are tied up in inventories andreceivables2. Size of business/scale of operationsThe working capital requirements of a concern are directly influenced by the sizeof its business which may be measured in terms of scale of operations. Greater thesize of a business unit, generally large will be the requirements of working capital.3. Production policyIn certain industries the demand is subject to wide fluctuations due to seasonalvariations. The requirements of working capital, in such cases, demand upon theproduction could be kept either steady by accumulating inventories during slackperiods with a view to meet high demand during the peak season or the productioncould be curtailed during the slack season and increased during the peak season.4. Manufacturing process/length of production cycleLonger the process period of manufacture, larger is the amount of working capitalrequired. The longer the manufacturing time, the raw materials and other supplies Page 13
  14. 14. have to be carried for a longer period in the process with progressive increment oflabor and service costs before the finished product is finally obtained5. Seasonal variationsIn certain industries raw material is not available throughout the year. They have tobuy raw materials in bulk during the season to ensure an uninterrupted flow andprocess them during the entire year.6. Credit policyThe credit policy of a concern in its dealings with debtors and creditors influenceconsiderably the requirements of working capital .a concern that purchases itsrequirements on credit and sells its products/services on cash requires lesseramount of working capital.7. Business cycleBusiness cycle refers to alternate expansion and contraction in general an activity.In a period of i.e. when the business is prosperous there is a need for largeramount of working capital due to increase in sales, rise in prices, optimisticexpansion of business, etc.8. Working capital cycle The working capital cycle starts with the purchase of raw materials and ends withthe realization of cash from the sale of finished products. This cycle involvespurchase of raw materials and stores. Its conversion into stocks of finished goodsthrough work -in-progress with progressive increment of labor and service costs,conversions of finished stock into sales, debtors and receivables and ultimatelyrealization of cash and this cycle continues again from cash to purchase of rawmaterial and so on. Page 14
  15. 15. 9. Price level changesChanges in the price level also affect the working capital requirements. Generallythe rising prices will require the firm to maintain larger amount of working capital,as more funds will be required to maintain the same current assets. The effect ofrising prices may be different for different firms.10. Other factorsCertain other factors such as operating efficiency, management ability,irregularities of supply, import policy, asset structure, importance of labor ,bankingfacilities, etc, also influence the requirements of working capital.OBJECTIVES: promote the growth of the cement interest To promote the customer interest To identify newer application of cement usage1.3 OBJECTIVES OF THE STUDY:1. To Study working capital management in MADRAS CEMENTS Ltd.2. To Examine an overview of working capital management.3. To Analyze at the possible remedial measures to improve company’s workingcapital performance in the near future.4. To Evaluate the efficiency of the company in utilizing its Current Assets.1.4 SCOPE OF THE STUDYThe scope of the study is limited only to MADRAS CEMNTS and is confined to 4years i.e. 2005-06 to 2008-09 annual reports. Page 15
  16. 16. DESIGN OF THE STUDYMETHODOLOGYThe present study is mainly about the working capital management of MADRASCEMENTS ltd. On the basis of the objectives of the study it was decided to useratio analysis and analysis of individual components of working capital as these areuniversally accepted techniques for analyzing the short term liquidity position ofthe firm. For the purpose of the analysis the following ratios have been used: 1 WORKING CAPITAL MANAGEMENT RATIOS 1. Working capital ratio/Current ratio. 2. Quick ratio/Acid test ratio. 3. Working capital turnover ratio. 4. Working capital performance ratio. 5. Current asset turnover ratio. I. CASH MANAGEMENT 1. Cash turnover ratio. II. INVENTORY MANAGEMENT 1. Raw materials turnover ratio. 2. Work in process turnover ratio. 3. Finished goods turnover ratio DEBTORS MANGEMENT 1. Debtor’s turnover ratio. Page 16
  17. 17. SOURCES:The study is based on the analysis of data from the annual reports of MADRASCEMENTS Ltd. The data used in the present study are mainly of two types:primary data and secondary data.1. The primary data is collected through the discussions made with the officials ofMADRAS CEMENTS Ltd.2.The secondary data is collected through the annual reports published by thecompany and company website.1.5 LIMITATIONS:The present study limits itself to the study of working capital management. In thepresent study the analysis is mainly based on secondary data given in the annualreports published by MADRASCEMENTS Ltd. The limitations prevailing in thesecondary sources are self evident in the study. Despite their weakness, theycontinue to be the only source for comparison of the results of the analysis. Thepresent study is carried taking this into consideration. Page 17
  18. 18. COMPANY PROFILE Page 18
  19. 19. Chapter 33.1 COMPANY PROFILECompany Overview: Madras Cements Ltd is the flagship company of the Ramco Group, awell-known business group of South India. It is headquartered at Chennai. Themain product of the company is Portland cement, manufactured in five state-of-theart production facilities spread over South India, with a current total productioncapacity of 10.49 MTPA. The company is the fifth largest cement producer in thecountry. Ramco Group is the most popular cement brand in South India. Thecompany also produces Ready Mix Concrete and Dry Mortar products, andoperates one of the largest wind farms in the country.Integrated Cement PlantsRamasamy Raja Nagar, Virudhunagar, Tamil NaduAlathiyur, Ariyalur District, Tamil NaduAriyalur, Govindapuram, Ariyalur District, Tamil NaduJayanthipuram, Andhra PradeshMathodu, Chitradurga District, KarnatakaGrinding Units Uthiramerur, Kanchipuram District, Tamil Nadu Valapady, Salem District, Tamil Nadu Kolaghat, Purba Medinipur District, West Bengal Page 19
  20. 20. Packing Terminals Nagercoil Packing Unit, Kumarapuram, Aralvaimozhi, Kanyakumari District, Tamil Nadu Hyderabad Packing Plant, Pochampally Road, Malkapur, Nalgonda District, Andhra PradeshState-of-the-Art Research Centre Ramco Research Development Centre (RRDC), ChennaiMISSION• To continuously improve productivity through quality, technology renewal andcustomer focused operations.• To position ourselves in the cement business as a pace setter and grow in thesame and related business.• To seek green field locations for growth on the basis of developed synergies ofthe existing operations.•To continuously seek quality enhancement in product, processes and responses tovarious stakeholders.•To update management practices on a continuous basis and maintain a culture ofprofessional management.• To conserve, protect and enhance quality of life for our employees andcommunity.• To preserve the credence in our motto "our real resources are the human assets". Page 20
  21. 21. CORE VALUES AND BENEFITS:• Customers continued satisfaction and the sensitivity to their needs is our sourceof strength and security. If there is no customer, there is no business We do notlook at productivity as a game in numbers. We try to learn from others, becommitted to quality and always stay ahead in terms of technologyRAMCO GROUP COMPANIES:•Madras cements limited•Ramco industries limited•Raja palayam mills limited Rajapalam, Tamilnadu•Sri Ramco spinning mills limited Rajapalam, Tamilnadu•Sundaram spinning mills limited Rajapalam, Tamilnadu•Sri Vishnu sankar limited Rajapalam , Tamilnadu•Ramaraju surgical cotton mills limited•Ramco systems limited•Ramco lanka (pvt) limited•Harini textilesSome corporate responsibilities of Ramco group:•Raja charity trust•C. Rama Swamy Raja education charity trust•P.A.C Rama Swamy Raja Poly technique Page 21
  22. 22. •P.A Chinnaih Raja memorial higher secondary school•P.A.C.R Ammani animal’s higher secondary school•Chinnaih vidyalaya P.A.C.R Raju matriculation higher secondary school•S.S.R vidhya mandir Plans are on to build a hospital in Rajapalam equipped withthe most advanced medical facilities. The primary aim of this hospital would be toprovide free medical to workers scheme society. In order to have impetus toecology development a senior horticulturist is being appointed his services will beextended to the farmers of nearby villages to help them ingoing various fruit andvegetation using hybrid varieties. We are going ahead shortly for massive aforestation of ISO acres of our land located at the entrance of our factory premises. Page 22
  23. 23. COMPANY HISTORY Page 23
  24. 24. 3.2 COMPANY HISTORYIn 1950s, investment in Cement Industry was not attractive due to price controlsand the massive investments required. Only those entrepreneurs who were notprofit minded but cared for countrys development came forward in investing inCement Industry. When Shri Manubai Shah, Central Minister for Industries in latefifties came to Madras to meet the Industrialists, he called upon Shri P ACRamasamy Raja and requested him to start a cement factory in TN . This wasreadily accepted by Shri PACR and this marked the birth of "MadrasCements Ltd"in 1961.On the night of September 3, 1962, while the whole city slept, PACR layon his bed in the Madras General Hospital, seriously ill. As all his near and dearwatched with tears in their eyes, PACR summoned his son RamasubrahmaneyaRajha, to his bedside. "There is no more hope", he whispered :"You should takecare of everything from now". My main concern is for Madras Cements. I havetaken a lot of money as shares from well wishers I have not paid them back anydividends as yet. This has to be taken care of immediately ...."PACRs last wishwas dutifully fulfilled by the present chairman Shri.P.R.Ramasubrahmaneya Rajah.Today Madras Cements Ltd is not only one of the most respected cementcompanies in the country but also leads in giving the best return for the investors.With a cement capacity of 10.49 millions tons per annum,(Mtpa) the company isthe sixth largest producer of cement in India. It is also one of the largest windenergy producer in the country with a capacity of 45 MW. The first plant of MCLat Ramasamy Raja Nagar, near Virudhunagar in Tamil Nadu commenced itsproduction in 1962 with a capacity of 200tonnes, using wet process. In 70s, theplant switched over to more efficient dry process. A second kiln was also added tobring the total capacity to 12 lakh ton per annum. The second venture of MCL is itsJayanthipuram plant near Vijayawada in A.P set up in 1987 . The 16 lakh ton perannum plant employs the latest state of art technology. The third venture of MCL Page 24
  25. 25. is at Alathiyur in TN set up in 1997 and expanded by addition of another line in2001. The 30 lakh ton per annum plant is the most modern plant in the country .In2000 , MCL acquired Gokul Cements situated in Mathod in Karnataka whosecapacity is 600 TPD. Being a eco-friendly company, MCL set up the RamcoWinfarm in 1993 at Muppandal TN. This was followed by windfarms in Poolavadinear Coimbatore in 1995 and Oothumalai in 2005. The combined capacity of thesetwo put together is about 45 MW .In the year 1999, MCL commissioned the mostsophisticated Ready Mix Concrete Plant in Medavakkam in South Chennai. In2002, a state-of-art Dry Mortar plant was commissioned near Sriperumpudur,Tamilnadu which manufactures dry mortar, cement based putty and tile fixcompound.Birth of the first Ramco VentureHis visited Britain and other European countries to see firsthand working of themills. There he had the chance to meet many business magnates .He returned toIndia full of ideas .After returning to Rajapalayam, he put his plans into action. Tostart they yarn mill, he found that he needed Rs.5 lakhs, which in 1936 was a hugesum. It was considered a Herculean task to raise such a big capital .But thedetermined Raja was not deterred. He decided to make the “shareholders”Rajapalayam Mills Ltd.,Thanks to his illustrious background and his own reputation, he got the requiredcapital ready, in next to no time. On September 05, 1938, the State Minister forlabor, V.V. Giri inaugurated the mill and Rajapalayam Mills Ltd commencedoperations. There was no looking back for Ramasamy Raja after this. The Mill wasa grand success .He followed up this with other successful ventures. He startedRama Raju Surgical Cotton Mills along with his son-in-law Rama Raju. Page 25
  26. 26. Madras Cements LtdAt that time, Cement was not considered as a favorable venture due to pricecontrols. Shri.Manubai Shah, Central Minister for Industries called uponRamasamy Raja and appealed to him to start a cement factory. This was howMadras Cements Ltd came into being in 1961.Ramasamy Raja needed one crore ascapital. The State Government for the first time in the history of India, investedRs.10 lakhs An indication of the total trust and implicit faith the Government hadin him. Concern for Shareholders and Workers Ramasamy Raja had the well beingof the people upper-most in his mind .He was very particular that the funds of hisshare holders be utilized usefully. He showed high concern for his workers. Thefamous trade unionist G Ramanujam once said :"In the case of Ramasamy Rajas companies, the workers are always thinking ofthe growth of the company, the Raja always has the well being of the workers andtheir families uppermost in his mind" AWARDS & ACHIEVEMENTS:-AWARDS: 4 Leaves Award Centre for Science and Environment National Award for Energy Conservation Confederation of Indian industry Best Energy Efficient Unit National Council for Cement and Building Materials Page 26
  27. 27.  Corporate Performance Award Economic Times Best Improvement in Energy Performance International Congress on Chemistry of Cement The Analyst Award The Institute of Chartered Financial Analysts of India Best all round Industrial performance Federation of AP Chambers of Commerce & Industries Visvesvariah Industrial Award All India Manufacturers Organization Business Excellence Award Industrial Economist Export Performance Award CAPEXIL State Safety Awards Tamil Nadu & AP Governments Good Industrial Relations Award Tamil Nadu & AP Governments Page 27
  28. 28. Technology OverviewMadras Cements Ltd is a trend-setter in adopting state-of-the-art technology for themanufacture of Cement, Ready Mix Concrete and Dry Mortar Products. MCL isthe first to bring the following technologies in South Indias cement industry.• The FUZZY Logic Software System for process Controls• Pre-calciner technology• Most Modern Programmable Logic Controllers (PLC)• Surface Mining Technology• Vertical Mills for Cement Grinding• Latest and highly effective ESPs and Bag filters• Advanced X-Ray technology for Quality ControlJAYANTHIPURAM UNITIn 1986 the company ventured into the second unit Jayanthipuram inAndhrapradesh 75 kilometers from Vijayawada towards Hyderabad with ainvestment of Rs 100 corers per manufacture of Rs 7.50 lakhs tones of cementper annum. This plant wa s commi ssioned in 1986 six month s aheadof schedule plans Madras cements is a ramco group of most ambitiousdiversification had. It is a profitable company today. Two were process plans weresetup in 1987with a capacity of 600 tones to produce Portland cements. Inthe1970’s totals with over was made to the dry process of manufacture. The singlelargest dry kiln in India at the time of establishment with a capacity of 1200 toneswas installed at ramaswamy rajanagar in Tamilnadu, for the first time in India,over the years the plant has modified and updated with preclaciner technology. Page 28
  29. 29. This has increased the capacity by 115% in 1993.Ramco group has setup itssecond and India’s most technological advances cement unit which started itsproduction in 1987 Jayanthipuram Krishna district and Andhra Pradesh with1.1 million tons per annum. This is the first factory in India to be totallycomputerized.It’soneof the most sophisticate plants in India with full co mputer controlled special software of F.L smiths and fuzzy logical systemfrom Denmark for kiln control. This flagship company of Ramco producer ofmarket cements with brand Ramco. The kiln was gradually upgraded from2300 TPD in 1986, 1994 and to 3200 TPD in1995. During this period rawmaterial and coal mill were also upgraded from 220 to 240 TPH and 26 to 30 TPHrespectively.Horizontali m p a c t c r u s h e r ( H I C ) , w a s i n s t a l l e d i n 1 9 9 5 i n c e m e nt m i l l c i r c u i t t o increase the output from 125 TPH to 180 TPH and thecement mill was optimized in 1996.with this the capacity has beenincreased to 11 lakh tones per annum. The plant has electrostaticprecipitators(ESP)anddeductingbagh o u s e s t o e n s u r e c l e a n a n d p o l lu t i o n f r e e e n v i r o n m e n t . M C L h a s a n uncompromising attitude towards the prevention of anti-environmental pollution.The above up gradation of kiln and other mills was carried out with and investmentof Rs 25 crores. 2004-2005 in this period they build one power grid. It carried outwith an investment of Rs 10 crores.EXPANSIONSlag grinding unit Madras cements have always stayed in the forefront of theindustry. Special task forces within the company keep track of the latestinternational development in cement technology and promote action toad opt thestate of art technology. India generates about 70 million tones of Fly ash and 10 Page 29
  30. 30. millions of slag annually. Disposal of Fly and slag problem to the environment.Concern for the environment and ecology is percolating very fast into customerawareness globally and there by a check on eco-hostile products is becoming animperative exercise. Both the central and state governments are stronglypropagating to use these products in cement manufacture .A working group hasbeen constituted by the government of Andhra Pradesh to study the generation anddisposal of Fly ash and BD slag. Based on the recommendations of the workinggroup the government of Andhrapradesh issued a GO instructing all governmentdepartments for utilization of 100% Pozzolana/slag cement, with in a period of 5years. In line with the policies of the government and our philosophy of usingotherwise no usable materials like Fly ash and slag to produce value added blendedcement and there by conserve limestone and other materials like coal etc, and alsoto save energy apart from being eco-friendly and creating clean atmosphere byreducing carbon dioxide mission proud of serving our nation by preservingminerals and maintaining clean atmosphere for our future generations.MCL is the first to bring the following technologies in South Indias cementindustry.1.The FUZZY Logic Software System for process Control2.Pre-calciner technology3.Most Modern Programmable Logic Controllers (PLC)4.Surface Mining Technology5.Vertical Mills for Cement Grinding6.Latest and highly effective ESPs and Bag filters7.Advanced X-Ray technology for Quality ControlISO certificationMadras cements limited, Jayanthipuram unit also got ISO 9002certification in may,1998. Page 30
  31. 31. SALIENT FEATURES OF MADRAS CEMENTS LIMITEDJAYANTHIPURAM:For the first time in India the very latest computerized control system areintroduced in the Jayanthipuram unit for efficient operation on energyconservation. The silent features of Jayanthipuram plant is furnished below:•A stacker re-claimer for pre blending and continuous flow silo for below•Vertical roller mills for grinding raw material and coal•Five stage per heater for their mail efficiency per calcinatory for efficiency use oflow grade coal•A scanner connected to a computer for refractory monitoring•X ray analyzer for quality control on line process computerized control forconsistent quality•Fuzzy logical software for kiln controlElectro static precipitator at 5 strategic points for pollution control•Belt bucket elevators for energy conservationsDEPARTMENTS IN MCLThe following are the departments in Madras Cements Ltd.1.Personnel department2.Accounts department3.Mines4.IT5.Stores and Material department6.Quality control lab Page 31
  32. 32. 7.Process department8. Engineering departments-Electrical and Mechanical department-Civil and Power plant-Instrumentation9.Cement dispatch section10.Security liaisonDETAILS OF EMPLOYEESSl no catagories No of employees1 officers 532 Officers prob with 3 grade3 tarinee 74 Staff 705 Staff worker 26 Staff prob with 7 grade7 trainee 18 Voucher staff 19 Voucher worker 410 workers 198 Page 32
  33. 33. INDUSTRY PROFILECEMENT INDUSTRY IN INDIAThe Cement industry in India has come a long way since 1914, when the firstcement plant was commissioned with a production level of 1000tons/ annum. Thefirst true Portland cement was manufactured in Calcutta presently called asKolkata. India is the second largest cement producer in the world. As cement is abasic construction material with virtually no substitute, it is used worldwide for allconstruction work. Thus the growth in the construction industry has a directrelation with the production and consumption of cement.India is the second largest cement producer in the world with a production level ofabout 99 million tons (about 5% of world production ~2000 million tons). Theinstalled capacity is about 119 million tones and at an expected 10 % growth ratethe production is likely to grow to about158.5 million tons at the end of 2006-2007.Over the years, the growth of the industry has been uneven. Withtraditionally cement deficit regions covering the most of the major growth centersof the country. Cement industry in India has made tremendous strides intechnological up gradation and assimilation of latest technology.At present ninety three per cent of the total capacity in the industry is based onmodern and environment-friendly dry process technology and only seven per cent Page 33
  34. 34. of the capacity is based on old wet and semi-dry process technology. The majorplayers of Indian cement industry are Madras cements, ACC, India cements,Gujarat Ambuja, Ultratech, Grasim, JK group, Jaypee group, Century textiles,Birla Corporation, Lafarge. There is tremendous scope for waste heat recovery incement plants and thereby reduction in emission level. Cement plants in thecountry have mostly changed from the wet process to the energy efficient dryprocess. In India, the cement factories are localized in the states of Tamil Nadu,Madhya Pradesh, Gujarat, Bihar, Rajasthan, Karnataka and Andhra Pradesh. Cement IndustryCement industry is one of the important industries to country development in thelight of the main important basis for construction industry and also the importantindicator showing domestic economic growth. In the past, the domestic demand ofcement used to be up to 36 million tons. But, the severely negative effects fromeconomic crisis in 1997 have caused real estate andconstruction industry subdued; the domestic demand of cement has shrunk andbeen in oversupply atmosphere.Until 2001–2003, the government has launched many economic actuating policies.This has made real estate and construction industry recovered and the demand ofcement has been increasing gradually from 21 million tons in 2001 to 25 milliontons and 26.82 million tons in 2002 and 2003 respectively; and the price level ishigher in line with increase production cost. Page 34
  35. 35. Cement Industry originated in India when the first plant commencedproduction in 1914 at Porbandar, Gujarat. The industry has since been growingat a steady pace, but in the initial stage ,particularly during the period beforeIndependence, the growth had been very slow. Since indigenous production wasnot sufficient to meet the entire domestic demand, the Government had to controlits price and distribution statutorily. Large quantities of cement had to be importedfor meeting the deficit. The industry was partially decontrolled in 1982 and thisgave impetus to its pace of growth. Installed capacity increased to more thandouble from 27 million tones in 1980-1981 to 62 million tones in 1989-1990.The cement industry responded positively to liberalization policy and theGovernment decontrolled the industry fully on 1st March 1989. From 1991onwards cement industry got the status of a priority industry in schedule III of theindustry policy statement, which made it eligible for automatic approval forforeign investment up to 51% and also for technical collaboration on normal termsof payment of royalty.DURING 2010-2011:Growth in domestic cement demand is likely to remain strong, with the resumptionin the housing markets, regular government spending on the rural sector andinfrastructure spend accomplished by rise in the number of infrastructure projectsimplemented by the private sector. Furthermore, it is expected that the industryplayers will continue to increase their annual cement output in coming years andIndia’s cement production will grow at a compound annual growth rate (CAGR) ofaround 12 per cent during 2011-2012 - 2013-2014 to reach 303 Million MetricTons, according to Indian Cement Industry Forecast to 2012. CementManufacturing Association (CMA) is targeting to achieve 550 MT capacities by Page 35
  36. 36. 2020. A large number of overseas players are also expected to enter the industry inthe coming years as 100 per cent FDI is permitted in the cement industry. Ourcountry is the second major cement producing country following the China havinga total capacity of around 230 MT (including mini plants). However, on account oflow per capita consumption of cement in the country (156 kgs/year as compared toworld average of 260 kgs) there is an enormous potential for growth of theindustry.This chart represents the total cement production during(2009-2010) cement production cement despatches 98.81 97.84 96.75 96 2010-11 2009-10The demand for cement mainly depends on the level of development and the rateof growth of the economy. There are no close substitutes for cement and hence thedemand for cement is price inelastic. During the October – 2011, 14.78 MT wereproduced and 14.38MT was consumed. For the FY 2011 – 2012 (Apr - Oct), MT97.84 was consumed form the 98.91 MT produced. During the first half of theyear, there was marginally poor off take in cement demand due to passiveconstruction activity, which lead to excess supply, thus putting downward pressureon realizations. This has been coupled with rise in input costs, especially prices ofcoal and petroleum products. As a result, both the top line and bottom line have Page 36
  37. 37. been affected. This demand supply mismatch scenario is expected to prevail forsome time. Good agricultural income will support demand.ABOUT THE SECTOR:Our country is the second major cement producing country following theChina; we have 137 large and 365 mini cement plants. Leading players in theindustry are Ultratech Cement, Gujarat Ambuja Cement Limited , JK Cements,ACC Cement, Madras Cements etc. Cement is an adhesive that holds the concretetogether and is therefore vital for meeting economy’s needs of Housing &accommodation and necessary infrastructure such as roads & bridges, schools,hospitals etc. Hence, the cement is one of the fundamental elements for setting upstrong and healthy infrastructure of the country and plays an important role ineconomic development and welfare of the nation.Cement industry is being segmented regionally i.e. Northern, Central,Western, Southern and Eastern. Cement, being a bulk item transporting it overlong distances can prove to be uneconomical as it attracts very high amount offreight. Thus, it has resulted in cement being largely a regional play with theindustry divided into five main regions. As it is a freight intensive industry, thesegment is completely domestic driven and exports account for very negligiblepercentage of the total cement off take.Major players in Indian cement sector:- Lafarge Gujarat Ambuja Cement Page 37
  38. 38. Ultratech Cement India Cements Century Cements Jaypee Group Madras Cements Birla Corporation Limited Jk cements Dalmia cements Chettinad cementsANNUAL INSTALLED CAPACITY:The Indian cement industry is highly fragmented with the top few accounting formore than 50% of the industry capacity. The rest is distributed among the largenumber of small players. The cement industry in India has come forward as thesecond largest in the world, showing a total capacity of around 230 millions tonesMT (including mini plants).This table represents the annual capacity of various cement comapies AnnualName of Cement Company Installed Capacity (MT)Grasim Industries Ltd. 25.65UltraTech Cement Ltd. 24.3Jaiprakash Associates Ltd. 17.15India Cements Ltd 14.05 Page 38
  39. 39. Madras Cements Ltd. 10.49Shree Cement Ltd. 12Dalmia Cement 9J.K. Cement Ltd. 8.42Chettinad Cement 8.2Century Textiles & Ind 7.8Lafarge India Pvt. Ltd. 7.55Birla Corp. Ltd. 7.38Kesoram Industries Ltd. 7.2Penna Cement Ind 6.5Binani Cement 6.25Total capacity held by majors 170.14(77% of the industry)Others (23% of the industry) 51.68Overview of the performance of the Cement Sector :-The Indian cement Industry not only ranks second in the production of cement inthe world but also produces quality cement, which meets global standards.However, the industry faces a number of constraints in terms of high cost ofpower, high railway tariff; high incidence of state and central levies and duties;lack of private and public investment in infrastructure projects; poor quality coaland inadequate growth of related infrastructure like sea and rail transport, ports andbulk terminals. In order to utilize excess capacity available with the cementindustry, the government has identified the following thrust areas for increasingdemand for cement. Housing development programmers. Promotion of concrete highways and roads. Page 39
  40. 40.  Use of ready-mix concrete in large infrastructure projects. Construction of concrete roads in rural areas under Prime Ministers Gram Sadak Yojana.The types of cement in India have increased over the years with the advancementin research, development, and technology. The Indian cement industry iswitnessing a boom as a result of which the production of different kinds of cementin India has also increased. By a fair estimate, there are around 11 different typesof cement that are being produced in India. The production of all these cementvarieties is according to the specifications of the cement.Some of the various types of cement produced in India are: Clinker Cement Ordinary Portland Cement Portland Blast Furnace Slag Cement Portland Pozzolana Cement Rapid Hardening Portland Cement Oil Well Cement White Cement Sulphate Resisting Portland CementIn India, the different types of cement are manufactured using dry, semi-dry, andwet processes. In the production of Clinker Cement, a lot of energy is required. Itis produced by using materials such as limestone, iron oxides, aluminum, andsilicon oxides. Among the different kinds of cement produced in India, PortlandPozzolana Cement, Ordinary Portland Cement, and Portland Blast Furnace SlagCement are the most important because they account for around 99% of the totalcement production in India. Page 40
  42. 42. Chapter 4Working capital management:Working Capital is the firm’s holdings of current assets such as cash, receivables,inventory & marketable securities. Every firm requires working capital for its dayto day transactions such as purchasing raw material, for meeting salaries, wages,rents, rates, advertising etc.Significance of Working Capital:The world in which real firms function is not perfect. It is characterized by thefirms’ considerable uncertainty regarding the demand, market price, quality &availability of its own products and those suppliers. While the firm has manystrategies available to address these circumstances, strategies that utilizeinvestment or financing with working capital accounts often offer a substantialadvantage over the techniques. The importance of working capital management isreflected in the fact that financial managers spend a great deal of time in managingcurrent assets and current liabilities like Arranging short term financing Negotiating favorable credit terms Controlling the movement of cash Administrating accounts receivables Monitoring investment in receivables.Decisions concerning the above areas play a vital role in maximizing the overallvalue of the firm. Once decisions concerning these areas are reached, the level ofworking capital is also determined in active decision sense, but falls out as residualfrom the decision just made. Page 42
  43. 43. The management of working capital plays an important role in maintaining thefinancial health during the normal course of business. This critical role can beenunciated by examining the flow of resources through the firm. By far the majorflow is the working capital cycle.This is the loop (previous page) which starts at the cash and the marketablesecurities account, goes through the current account as direct labor and materialswhich are purchased and use to produce inventory ,which in turn is sold andgenerates accounts receivables, which are finally collected to replenish cash. Themajor point to notice about this cycle is that the turnover or velocity of resourcesthrough this is very high related to the other inflows and outflows of the cashaccount. There are two concepts of working capital namely;Gross Working Capital and Net Working Capital. Gross Working Capital, simplycalled as working capital refers to the firm’s investment in current assets. Currentassets are the assets, which in ordinary course o business can be converted intocash within an accounting year. Current assets include cash and bank balances,short term loans and advances bills receivables, sundry debtors, inventory, prepaidexpenses, accrued incomes, money receivable ( within 12months).The following are the few advantages of adequate working capital in thebusiness:Cash Discount: Adequate working capital enables a firm to avail cash discountfacilities offered to it by the suppliers. The amount of cash discount reduces thecost of purchase.Goodwill: Adequate working capital enables a firm to make prompt payment.Making prompt payment is a base to create and maintain goodwill. Page 43
  44. 44. Ability to face crisis: The provision of adequate working capital facilities to meetsituations of crisis and emergencies. It enables a business to with stand periods ofdepression smoothly.Credit-Worthiness: It enables a firm to operate its business more efficientlybecause there is not delay in getting loans from banks and other on easy andfavorable terms.Regular supply of raw materials: It permits the carrying of inventories at a levelthat would enable a business to serve satisfactory he needs of its customers. That isit ensures regular supply of raw materials and continuous production.Expansion of markets: A firm which has adequate working capital can createfavorable market condition i.e. purchasing its requirements in bulk when prices arelower and holding its inventories for higher. Thus profits are increased .Increased productivity.Research programs.High morale.Problems of inadequate working capital:-Firm may not be able to take advantage of profitable business opportunities.Production facilities cannot be utilized fully.Short-term liabilities cannot be paid because of non-availability of funds. Its lowliquidity may lead to low profitability. In the same way, low profitability results inlow liquidity.It may not be able to take advantages of cash discounts. Credit worthiness of thefirm may be damaged because of lack of liquidity. Thus it may be lose itsreputation; thereafter a firm may not be able get credit facilities. Page 44
  45. 45. Working capital policy:Working capital management policies have a great effect on firm’s profitability,liquidity and its structural health. A finance manager should therefore, chalk outappropriate working capital policies in respect of each competent of workingcapital so as to ensure high profitability, proper liquidity and sound structuralhealth of the organization.In order to achieve this objective the financial manager has toper form basicallyfollowing two functions: Estimating the amount of working capital. Sources from which these funds have to be raised.Operating Cycle:Working capital is required because of the time gap between the sales and theiractual realization in cash. This time gap is technically terms as operating cycle ofthe business.In case manufacturing company, the operating cycle of time necessary to completethe following cycle of event. Conversion of cash into raw materials. Conversion of raw materials into work in progress. Conversion of work in progress into finished goods. Conversion of finished goods into accounts receivables Conversion of accounts receivables into cash.This cycle is continuous phenomena. In case of “Trading Firm” the operatingcycle will include the length of time required to: Cash into inventories. Inventories into accounts receivables. Page 45
  46. 46. Accounts receivables into cash.In case of “Financing Firm” the operating cycle includes the length of time takenfor 1 year. Conversion of cash debtors, and Conversion of debtors into cashIMPORTANT OR ADVANTAGES OF ADEQUATE WORKINGCAPITAL:1. Solvency of the business: Adequate working capital helps in maintainingsolvency of the business by providing uninterrupted flow of production.2. Goodwill: Sufficient working capital enables a business concern to make promptpayments and helps in creating and maintaining goodwill.3. Easy loans: A concern having adequate working capital, high solvency and goodcredit standing can arrange from banks and other an easy and favorable terms.4. Cash discount: Adequate we also enable a concern to avail cash discount on thepurchases and hence it reduces costs.5. Regular supply of raw material: Sufficient working capital ensures regularsupply or raw material and continuous production.6. Regular payment of salaries and wages and other day-to-day commitments:A company which has ample working capital can make regular payment ofsalaries, wages and other day-to-day commitments which raises the moral of itsemployees increase their efficiency, reduces wastage’s and costs and enhanceproduction and profits. Page 46
  47. 47. 7. Exploitation of favorable market condition: Only concern with adequate we canexploit favorable market conditions such as purchasing its requirement in bulkwhen the prices are lower and by holding its inventories for higher.8. Ability to face crisis: Adequate working capital enables a concern to facebusiness crisis in emergency such as depression because during such periods,generally, there is much pressure on working capital.9. Quick and regular return on investment: Every investor wants a quick andregular return his investment sufficiency of working capital enables a concern topay quick and regular dividends to its investors as there may not be much pressureto plough back profits. This gains the confidence to raise additional funds in thefuture.10. High morale: Adequacy of working capital creates an environment of security,confidence, high morale and creates overall efficiency in a business.EXCESS OR INADEQUATE WORKING CAPITALEvery business concern should have adequate working capital run its businessoperation. It should have neither redundant or excess working capital norinadequate nor shortage or working capital. Both excess as well as short workingcapital positions are bad for any business. However, out of the two, it is theinadequacy of working capital, which is more dangerous from the point of view ofthe firm.DISADVANTAGES OF REDUNDANT OR EXCESSIVEWORKING CAPITALExcessive working capital means idle funds which earn no profits for the businessand hence the business cannot earn a proper rate of return on its investments. Page 47
  48. 48. When there is a redundant working capital, it may lead to un necessary purchasingand accumulation of inventories causing more chances of theft, waste and loses.Excessive working capital implies excessive debtors and defective credit policywhich may cause higher incidence of bad debts. It may results into overallinefficiency in the organization.When there is excessive working capital, relation with banks and other financialinstitution may not be maintained.Due to low rate of return on investment, the value of share may also fall. Theredundant working capital gives rise to speculative transactions.DISADVANTAGES OR DANGERS OF INADEQUATEWORKING CAPITAL A concern, which has inadequate working capital, cannot pay its short-termliabilities in time. Thus it will lose its reputation and shall not be able toget goodcredit facilities. It cannot buy its requirements in bulk and cannot avail of discount, etc.Itbecomes difficult for the firm to exploit favorable market condition andundertakeprofitable projects due to lack of working capital. The firm cannot pay day-to-day expenses of its operations and itscreatesinefficiencies, increases costs and reduces the profits of thebusiness. It becomes impossible to utilize efficiently the fixed asset due to non-availability of liquid funds .The rate of return on investment also falls withtheshortage of working capital. Page 48
  49. 49. CHARACTERISTICS OF CURRENT ASSETS:In the management of working capital, there are two characteristics of workingcapital(1) short life span(2) swift transformation into other asset forms.Current assets have a short life span. Cash balances may be held idle for a week ortwo, accounts receivable may have a life span of 30 to 120 days, and inventoriesmay be held for 30 to 100 days. The life span of current assets depends upon thetime required in the activities of procurement, production ,sales, and collection andthe degree of synchronization among them.Each current asset is swiftly transformed into other asset forms cash is used foracquiring raw materials ; raw materials are transformed into finished goods (thistransformation may involve several stages of work-in-progress);finished goods,generally sold on credit are converted into sundry debtors, on realization, generatecash.The short life span of working capital components and their swift transformationfrom one form into another has certain implications Decisions relating to workingcapital management are repetitive and frequent.The difference between profit and present value is insignificant. The closeinteraction among working capital components implies that efficient managementof one component cannot be undertaken without simultaneous consideration ofother componentsThe investment in working capital is influenced by four key events in theproduction and sales cycle of the firm Purchase of raw materials Page 49
  50. 50. Payment of raw materials Sale of finished goodsCollection of cash for sales Above diagram depicts these events on the cash flowline. The firm begins with the purchase of raw materials which are paid for after adelay which representsthe accounts payable period. The length of operating cycle of a manufacturing firmtakes into account. Inventor Conversion period (ICP) Debtor Conversion period (DCP) Payment Deferred Period (PDP)The Inventory Conversion Period is the total time needed for producing andselling the product .The firm converts the raw material in to finished goods andthen sells the same. The time lag between the purchase of raw materials and thesale of finished goods is the inventory period.. Typically, it includes: Raw Material Conversion Period (RMPC) Work-in-Progress Conversion Period (WIPCP) Finished Goods Conversion Period (FGCP)The Debtor Conversion Period Is the time required to collect Outstanding amountfrom customers. Customers pay their bills sometimes after the sales. The periodthat elapses between the date of sales and the date of collection of receivables isthe accounts payable period or debtor’s period. The total of inventory conversionperiod and debtor collection period is referred to as Gross Operating Cycle(GOC).The Payments Deferred Period is the length of time the firm is able to deferpayment on various resource purchases. The difference between the gross Page 50
  51. 51. operating cycle and payment-deferred period is Net Operating Cycle(NOC).Symbolically,ICP = RMCP + WIPCP + FGCPGOC = ICP + DCPNOC = GOC – PDPThe duration of the cycle with reference to working capital is:Longer the cycle ----- Higher the working capitalShorter the cycle ----- Lower the working capital.It is helpful to monitor the behavior of overall operating cycle and its individualcomponents. For this purpose, time-series analysis and cross-section analysis maybe done. In time-series analysis, the duration of the operating cycle and itsindividual components is compared over a period of time for the same firm. Incross-section analysis, the duration of the operating cycle and its individualcomponents is compared with that of other firms of a comparable nature. Page 51
  53. 53. CHAPTER 55.1 GROWTH RATE OF MADRAS CEMENTS LTDThis chapter is allotted to analysis the growth of madras cements ltd .the analysis iscarried out of with following variables cost of equity, cost of debt, cost ofpreference shares, retained earnings. The variable selected to study the growth are 1. Fixed assets 2. Net current assets 3. Sales 4. Loan funds 5. Capital employed5.1.1 FIXED ASSETSFixed asset, also called noncurrent assets, are assets that are expected to producebenefits for more than one year. These assets may be tangible or intangible fixedassets include items such as land, building, plant, machinery, furniture, andcomputers. Intangible fixed assets include items such patent, copy right,trademarks, and good will. Tangible fixed assets are reported in the balance sheet at their net blockvalue, which is simply the gross value less accumulated depreciation represents theallocation of the cost of a tangible fixed assets to various accounting periods thatbenefits from its use. Likewise, intangible fixed assets are reports their net bookvalue, which is simply the gross value accounting period that benefits from its use. Page 53
  54. 54. The following table presents the data relating to the fixed assetsYears fixed assets (Rs in cr) Growth rate in %2006-2007 1258 1002007-2008 2482 1972008-2009 3635 2892009-2010 4010 3192010-2011 4489 357 Average growth rate 252The following chart represents the data relating to the fixed assets fixed assets (Rs in cr) 5000 4500 4000 4489 3500 4010 3635 3000 2500 2000 2482 fixed assets (Rs in cr) 1500 1000 1258 500 0 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011INTERPRETATIONIt is observed from the above chart that the Fixed Assets of MADRAS CEMENTSLtd. For past five years (2007-2011) have been increased continuously ,it shows Page 54
  55. 55. that Fixed Assets is properly used and maintain. The average company growth rateof fixed assets increased at 252 %. So the company is performing well.5.1.2 NET CURRENT ASSETSAn indication of how much capital is being generated or used up by day to dayactivities .It is also known as working capital or current capital., and it is calculatedby the following,current assets minus current liabilitiesCURRENT ASSETSCurrent assets are cash and other assets expected to be converted to cash, sold, orconsumed either in a year or in the operating cycle. These assets are continuallyturned over in the course of a business during normal business activity.1. Cash and cash equivalents It is the most liquid asset, which includes currency, deposit accounts andnegotiable instruments (e.g., money orders, cheque, and bank drafts).2. Short term investments Include securities bought and held for sale in the near future to generateincome on short term price differences (trading securities).3. Receivables Usually reported as net of allowance for uncollectable accounts4. Inventory Page 55
  56. 56. Trading these assets is a normal business of a company. The inventory valuereported on the balance sheet is usually the historical cost or fair market value,whichever is lower. This is known as the “lower of cost or market” rule.The following table presents the data relating to the Net Current Assets.Years Net current assets growth rate in % (Rs in cr)2006-2007 2202 1002007-2008 3777 1712008-2009 4734 2152009-2010 5894 2682010-2011 5088 231 Average growth rate 197The following chart represents the data relating to Net Current Assets. Net current assets (Rs in cr) 7000 6000 5894 5000 5088 4000 4734 3777 3000 Net current assets (Rs in cr) 2000 2202 1000 0 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 Page 56
  57. 57. INTERPRETATION It is observed from the above chart that the Net Current Assets of MADRASCEMENTS Ltd. has been increased continuously form 2007 to 2010 and it isslightly decreased in 2011, it shows that Net Current Assets is properly maintained.The company average growth rate of Net Current assets decreased at 197%5.1.6 NET SALESA sale is the pinnacle activity involved in selling products or services in return formoney or other comparison. It is an act of completion of a commercial activity.The “deal is closed”, means the customer has consented to the proposed product orservice by making full or partial payment (as in case of installments) to the seller.A sale is completed by the seller, the owner of the goods. It starts with consent (oragreement) to an acquisition or appropriation or request followed by the passing oftitle (property or ownership) in the item and the application and due settlement of aprice, the obligation for which arises due to the sellers requirement to passownership, being a price the seller is happy to part with ownership of or any claimupon the item. The purchaser, though a party to the sale does not execute the sale,only the seller does that. To be precise the sale completes prior to the payment andgives rise to the obligation of payment. If the seller completes the first two abovestages (consent and passing ownership) of the sale prior to settlement of the pricethe sale is still valid and gives rise to an obligation to pay. Page 57
  58. 58. The following table shows that data relating to the sales value.Years Net sales (amt in cr) Growth rate in%2006-2007 1567 1002007-2008 2005 127.92008-2009 2529 161.32009-2010 2807 179.12010-2011 2620 167.1 Average growth rate 147.08The following chart shows that data relating to the net sales value. Net sales (amt in cr) 3000 2500 2807 2529 2620 2000 2005 1500 1567 Net sales (amt in cr) 1000 500 0 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011INTERPRETATION1.43 It is observed from the above chart that the net sales of MADRASCEMENTS Ltd has been increased continuously form 2006 to 2007 and it isdecreased little in 2011. The Average Company Growth rate of sales increased at147.08 %. So company is functioning in satisfactory level Page 58
  59. 59. 5.1.7 LOAN FUNDSUnder certain circumstances and at the specific request of a borrower, the bankmay agree to the use of surplus loan amounts in the borrower’s loan account(commonly referred to as “surplus loan funds”) for purposes that are in accordancewith or even outside the broad objectives of the project, provided these funds arenot required to meet other needs of the project. The authority to approvereallocation differs according to the purpose.Surplus loan funds comprise those funds that are available (pr are expected to beavailable) in the loan account of a borrower after arrangements for procurements ofall goods or services and payments for any other expenditures to cover anycontingencies), and it is clear that there will still be funds remaining.The following table presents the data relating to the loan funds.Years Loan funds(amt in cr) Growth rate in %2006-2007 677 1002007-2008 1635 241.502008-2009 2463 363.812009-2010 2566 379.022010-2011 2791 412.25 Average growth rate 299.316 Page 59
  60. 60. The following chart shows that data relating to the loan funds. Loan funds(amt in cr) 3000 2500 2791 2463 2566 2000 1500 1635 Loan funds(amt in cr) 1000 500 677 0 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011INTERPRETATIONIt is observed from the above table that the loan fund of MADRAS CEMENTSLtd. For past five years (2007-2011) has been increased continuously, it showsthat loan funds is properly used and maintained. The average company growth rateis increased at 299.316%. So company is functioning in good level.5.1.8 WORKING CAPITAL AS A % OF CAPITAL EMPLOYEDCapital employed has many definitions and is not easily analyzed. In general, itrepresents the capital investment necessary for a business to function.Consequently, it is not a measure of assets, but of capital investment: stock orshares and long term liabilities. Capital employed can be defined as equity plusloans which are subject to interest of one can say that it is total assets less nonbearing interest liabilities. Page 60
  61. 61. Capital employed can be defined as share holder’s funds (i.e. share capital andreserves) plus creditors > 1 year (long – term liabilities) plus provisions forliabilities and charges. This must equal total assets less current liabilities. Capitalemployed is the value of the assets that contribute to a company’s ability togenerate revenue, i.e. their liquidity.The following table shows that the data relating capital employed.Years Capital employed ( amt Growth rate In % in cr)2006-2007 874 1002007-2008 1936 221.512008-2009 2898 331.572009-2010 3113 356.172010-2011 3408 389.93 Average growth rate 279.836The following chart shows that the data relating capital employed. Capital employed ( amt in cr) 4000 3500 3000 3408 3113 2500 2898 2000 1936 Capital employed ( amt in cr) 1500 1000 500 874 0 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 Page 61
  62. 62. INTERPRETATION It is observed from the above table that the net capital employed ofMADRAS CEMENTS Ltd. For past five years(2007-2008) has been increasedcontinuously .This shows that capital employed is properly used and maintained.The average company growth rate of capital employed is increased at 256.72%. Socompany is functioning in good level.RATIO ANALYSIS5.2 RatiosRatio Analysis is describing the significant relationship which exists betweenvarious items of a balance sheet and a profit and loss account of a firm. As atechnique of financial analysis, accounting ratios measure the comparativesignificance of the individual items of the income and position statements It ispossible to assess the profitability, solvency and efficiency of an enterprise throughthe technique of ratio analysis. 1. Profitability: has the business made a good profit compared to its turnover? 2. Return Ratios: compared to its assets and capital employed, has the business made a good profit? 3. Liquidity: does the business have enough money to pay its bills? 4. Asset Usage or Activity: how has the business used its fixed and current assets? Page 62
  63. 63. 5. Gearing: does the company have a lot of debt or is it financed mainly by shares? SHORT TERM LIQUIDITY MANAGEMENTCURRENT RATIO:-The current ratio is a measure of a firm’s short-term solvency. It indicates theavailability of current assets in rupee for every one rupee of current liabilities. Aratio of greater than one means that firm has more current assents than currentclaims against them. A high ratio indicates high liquidity; while a low ratioindicates a low liquidity. For manufacturing CURRENTS ASSETSCURRENT RATIO = CURRENT LIABILITIE STable 1.1 CURRENT RATIO in Rs. YEAER CURRENT ASSETS CURRENT LIABILITIES RATIO 2006-07 3149756052 1656267950 1.9 2007-08 3270733711 2286973441 1.43 2008-09 6147532582 3945088370 1.56 2009-10 7792358719 4015124569 1.94 Page 63
  64. 64. Current Ratio 2 1.5 1 Current Ratio 0.5 0 2006-07 2007-08 2008-09 2009-10Interpretation:-The Current Ratio during the period of the study was higher than the standard. Thisin turn indicates that the company is maintaining sufficient liquidity in theirorganization. For a manufacturing undertaking, a ratio of 2:1 is traditionallyconsidered a benchmark of adequate liquidity.QUICK RATIO:Quick Ratio indicates the immediate liquidity of current assets. Recognizing thatinventory might not be very liquid, this ratio takes into account quickly realizableassets and measures them against current liabilities. This is more accurate measureof estimating the unit’s liquidity. Generally a quick ratio of 1:1 is considered to bea more satisfactory measure of liquidity position of a concern QUICK ASSETS QUICK RATIO = CURRENT LIABILITIE STable 1.2 QUICK RATIO in Rs Page 64
  65. 65. CURRENT YEAR QUICK ASSETS LIABILITIES RATIO 2006-07 1792815683 1656267950 1.08 2007-08 2252011403 2286973441 0.98 2008-09 4848409659 3945088370 1.22 2009-10 5356761021 4015124569 1.33 Quick Ratio 1.4 1.2 1 0.8 Quick Ratio 0.6 0.4 0.2 0 2006-07 2007-08 2008-09 2009-10InterpretationThe table reveals that the overall quick ratio is around 1.5. This is according to thestandard, which indicates that the company has maintained sufficient current assetsto meet the current of liquid assets are locked in current assets (which if effectivelyused can increase the productivity).WORKING CAPITAL TURNOVER RATIO:-Working capital turnover ratio establishes a relationship between net sales andworking capital. This ratio provides information as to how effectively a company isusing its working capital to generate sales. A higher ratio indicates themanagement’s efficient utilization of the assets while low turnover ratio indicatesthe underutilization of available resources and presence of idle capacity. Page 65
  66. 66. NET SALES WORKING CAPITAL TURNOVER RATIO= NETWORKING CAPITAL * Net Working Capital = Current Assets – Current LiabilitiesTable 1.3 WORKING CAPITAL TURNOVER RATIO In Rs. NET WORKING YEAR NET SALES RATIO CAPITAL 2006-07 7145429942 1493488102 4.78 2007-08 9863449724 983760270 10.02 2008-09 15301309179 2202444212 6.94 2009-10 19246718554 3777284150 5.09 Net Working Capital Turnover Ratio 12 10 8 6 Net Working Capital Turnover Ratio 4 2 0 2006-07 2007-08 2008-09 2009-10Interpretation: Page 66
  67. 67. The working capital turnover ratio was 4.78 in the year 2006-07, increased to10.02 in the year 2007-08 and again decreased to 6.94 in the year 2008-09 Andagain decreased 5.09 in the year 2009-10 Thus, the ratio during the period of thestudy is showing a fluctuating trend. But the average ratio during the period washigh, which is an indication that the firm has been utilizing the assets efficiently.WORKING CAPITAL PERFORMANCE RATIO:This ratio indicates the mode of financing of debtors. It is used more to control theworking capital of an enterprise. Often a minimum and maximum value of the ratiois known to lessen the dependence of financing from other sources. A ratio of 1:1is considered to be a more satisfactory measure of performance of working capitalof a firm. TRADEDEBTORSWorking capital performance ratio = TRADECREDITORS ADVANCEPAY MENTSTable 1.4 Working Capital Performance Ratio In Rs. TRADE TRADECREDITORS+ADVANCE YEAR DEBTORS PAYMENTS RATIO 2006-07 452734619 1069142870 0.42 2007-08 493474854 1198528794 0.41 2008-09 653448795 23834113029 0.23 2009-10 Working capital performance ratio 616072465 4504830991 0.13 0.45 0.4 0.35 0.3 0.25 Working capital 0.2 performance ratio 0.15 0.1 0.05 Page 0 67 2006-07 2007-08 2008-09 2009-10
  68. 68. Interpretation:The working capital performance ratio was 0.42 during the year 2006-07 itdecreased to0.41 in the year 2007-08 and it decreased to 0.23 in the year 2008-09and it again decrease much higher than the standard ratio; this indicates that thecompany has been financing the debtors very well.CURRENT ASSETS TURNOVER RATIO: -It explains the relationship between sales and current assets. This ratio indicates the salesgenerating capacity of current assets. The lower the ratio more is the amount of current assetsrequired per unit of sales SALES Current Assets turnover ratio = CURRENTASSETSTable 1. Current Assets turnover ratio In Rs. YEAR NET SALES CURRENT ASSETS RATIO 2006-07 7145429942 3149756052 2.26 2007-08 9863449724 3270733711 3.01 2008-09 15301309179 6147532582 2.48 2009-10 19246718554 7792358719 2.46 Page 68
  69. 69. Current Assets turnover ratio 3.5 3 2.5 2 Current Assets turnover 1.5 ratio 1 0.5 0 2006-07 2007-08 2008-09 2009-10Interpretation:The current assets turnover ratio was 2.26 in the year 2006-2007, it increased to3.01 in the year 2007-2008 and decreased to 2.48 in the year 2008-2009 and againdecreased 2.46 in the year 2009-2010The current asset turnover ratio during theperiod under the study had a fluctuating trend. But when we refer 2006-2007 to2007-2008, 2008-2009 and 2009-2010 we can see that there is an increase whichindicates that the company has been using the current assets properly to generatesales.CASH MANAGEMENTCash Turnover Ratio: This ratio focuses on the cash holding policy of the firm. Adecline in this ratio indicates high levels of idle cash. A high ratio is morepreferable. CASHOPERAT INGEXPENSES Cash Turnover ratio = CASHANDBANKBALANCDESTable 1.6 Cash Turnover Ratio In Rs. CASH OPERATING CASH AND BANK YEAR EXPENSES BALANCES RATIO 2006-07 6330921229 434118131 14.58 2007-08 8313160381 493065688 16.86 2008-09 1028447999 565713869 18.13 2009-10 13200044657 229435639 57.53 Page 69
  70. 70. Cash Turnover Ratio 60 50 40 30 Cash Turnover Ratio 20 10 0 2006-07 2007-08 2008-09 2009-10Interpretation:The Cash turnover ratio was 14.58 in the year 2006-07 which increased to 16.86 in2007-08 and increased to 18.17 in the year2008-09.again increased 57.53 in theyear2009-10. The ratio has been above 14 .58 during the period of study, whichindicates that the cash holding policy of the firm is good.INVENTORY MANAGEMENTActivity Ratios:-Funds of various creditors and owners are invested in various assets to generatesales and profits. The better the management of assets, the larger the amount ofsales. Activity ratios are employed to evaluate the efficiency with which the firmmanages and utilizes its assets. These ratios are also known as Turnover ratiosbecause they indicate the speed with which the assets are being converted or turnedover into sales. Activity ratios, thus involve a relationship between sales and assets.A proper balance between sales and assets generally reflect that assets are managedwell.Inventory Turnover Ratio:- Page 70
  71. 71. Inventory Turnover Ratio indicates the efficiency of the firm in producing andselling its product. It is calculated by dividing cost of goods sold by the averageinventory. COSTOFGOOD SSOLD Inventory Turnover Ratio= AVERAGEINV ENTORYTable 1.7 Inventory Turnover Ratio In Rs. YEAR AVERAGE S COST OF GOODS SOLD INVENTORY RATIO 2006-07 3820898207 117667878 32.47 2007-08 4367281138 362768945 12.03 2008-09 5788755562 293487301 19.72 2009-10 7840396793 279747059 28.02 Inventory Turnover Ratio 35 30 25 20 15 Inventory Turnover Ratio 10 5 0 2006-07 2007-08 2008-09 2009-10 Page 71
  72. 72. Interpretation:The inventory turnover ratio indicates the number of times a rupee generates turnover with respect to inventory investment. A high ratio indicates a betterconversion of inventory. The inventory turnover ratio in the year 2006-07 was32.47 which decreased to 12.03 in 2007-08 and which further increase to 19.72 in2008-09 and again increased 28.02 in the year 2009-10which shows an upwardtrend which is a very good sign for the company.RAW MATERIAL INVENTORY TURNOVER:-This ratio shows the efficiency of the firm in converting raw material into finishedgoods. Raw material turnover and holding period shows the number of times rawmaterial is rotated during the period. It shows the number of times raw material isconverted into work-in-progress. It also shows the number of days it takes toconvert raw material into finished goods. RAWMATERIA LCONSUMEDRaw material Inventory Turnover = AVERAGERAWMATERIALTable 1.8 RAW MATERIAL INVENTORY TURNOVER In Rs. MATERIAL AVERAGE RAW MATERIAL YEAR CONSUMED INVENTORY RATIO 2006-07 1177843411 67226226 17.52 2007-08 Raw Material Inventory Turnover8877554 1520714101 17.16 2008-09 2011500769 128567141 15.64 18 2009-10 2564131071 227080390 11.29 16 14 12 10 Raw Material Inventory 8 Turnover 6 4 2 Page 0 72 2006-07 2007-08 2008-09 2009-10